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Deutsche Bank AG (NYSE:DB)

Q1 2013 Earnings Call

April 30, 2013 2:00 am ET

Executives

Joachim Müller

Anshuman Jain - Co-Chairmen of The Management Board and Co-Chief Executive Officer

Stefan Krause - Chief Financial Officer, Member of Management Board and Member of Capital & Risk Committee

Analysts

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Daniele Brupbacher - UBS Investment Bank, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Huw Van Steenis - Morgan Stanley, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Stuart Graham - Autonomous Research LLP

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2013 Conference Call of Deutsche Bank. [Operator Instructions] I would now like to turn the conference over to Mr. Joachim Müller, Head of Investor Relations. Please go ahead, sir.

Joachim Müller

Yes, thank you. And good morning from Frankfurt. On behalf of Deutsche Bank, I would like to welcome you to our First Quarter Conference Call. We have with us today our co-CEO, Anshu Jain; and our CFO, Stefan Krause, who will lead you through the highlights of this quarter. We will have a question-and-answer session at the end of the remarks. And as you know, we've already provided you with all the documents yesterday, which you'll find on our website. Please be reminded of the cautionary statements regarding forward-looking statements at the end of the presentation. And with that, I would like to straight hand over to Anshu.

Anshuman Jain

Thank you, Joachim, and good morning, everyone. Before Stefan goes through his detailed presentation, I would like to take you through our current capital position and capital strategy going forward and then put that in the context of our first quarter results.

Capital strength is a core part of Strategy 2015. We began this journey with a Basel III pro forma Core Tier 1 capital ratio of below 6%, which was behind the leaders in our peer group. In September, we stated publicly that our aim is to raise that to 10% by first quarter 2015. We listened carefully to many stakeholders, regulators, investors, analysts and commentators as we developed our strategy. And subsequently, the message was clear. Resolving the capital issue has to be our top priority.

For 2 consecutive quarters, we beat the targets we set ourselves. In 9 months, we raised our Basel III Tier 1 ratio from below 6% to 8.8% versus a raised target of 8.5%. This is equivalent to a capital raise of over EUR 10 billion. To do this organically represents the fastest capital buildup of any major peer during the period, and we achieved this through disciplined risk reduction. Since June, we've reduced risk-weighted assets by EUR 103 billion. We're aware of some suggestions that we achieved this risk reduction mainly through model adjustments. But let me say clearly, those suggestions are unfounded. We achieved the bulk of by true asset sales and hedging. For example, the Non-Core Operations Unit has contributed some EUR 50 billion of this total. In the first quarter alone, it disposed of a further EUR 9 billion of assets at or above carrying value.

We're now reporting on a package of 3 measures that strengthened our capital structure. These are: firstly, continued strengthening of our capital base by organic means in good measure through accelerated risk reduction; secondly, the capital measures announced today, which form part of the capital toolbox we discussed last September. This would take us from the Basel III pro forma ratio of 8.8%, which we've achieved organically, to approximately 9.5%. That ranks us today as one of the best capitalized banks of our global peer group. And thirdly, our intention to potentially issue up to EUR 2 billion of additional subordinated capital over the next 12 months. The third measure reflects a duty that we take very seriously. We're not only responsible for the sound commercial functioning of the institution. We must also ensure that Deutsche Bank is resolvable in the eyes of the most demanding requirements of a changing regulatory landscape around the world. This further reflects our commitment to contributing to a stable and reliable financial system on which society depends. In addition, these measures allow us to take advantage of organic growth opportunities in a changing competitive landscape. We want to give ourselves optionality to take these opportunities sooner and turn them into lasting value for shareholders.

Today, we can say that the so-called hunger march is over. We can now accelerate the process of taking advantage of growth opportunities and simultaneously look forward to the day when we can return more capital to shareholders. Crucially, I'm pleased to report that in the first quarter, we delivered strong profitability on this higher capital base. Post-tax return on equity was 12%. For the Core Bank, it was 17% on an annualized basis compared to a 2015 aspiration of 15%. Q1 is seasonally a good quarter for us, but this is an early indication of the franchise's ability to produce strong returns in what remains a challenging and uncertain market environment. Despite reducing costs and risk-weighted assets, we continue to take market share and deliver in each of our key products and regions.

Let me now give you some highlights of our progress. CB&S, our investment banking division, has performed strongly. For CB&S, headwinds have been stronger in Europe both from regulation and a tough environment. Someone suggested that European houses would lose ground to North American competitors. We don't see that. Our CB&S franchise has proven very robust. In key areas, we've actually gained market share. The rightsizing we carried out last year as part of the Operational Excellence Program, far from weakening the franchise, has actually strengthened us. Our performance in German retail banking has also been a driver of our first quarter results.

PBC has just delivered its best quarter since we consolidated Postbank back in 2010, excluding cost-to-achieve and purchase price allocation effects. Revenues benefited from growth in lending, thanks to record new production levels, earning EUR 300 million per week. We made market share gains in our German mortgage business, where volumes are up by 10% year-on-year. Revenues from investment products are up 8% year-on-year as clients returned to equity markets after some disappointing quarters. We held the cost base flat, and Postbank integration continues on track. Strict risk discipline is paying off. Provision for credit losses was at a record low.

GTB has produced profits in line with last year although the revenue environment remains very tough with pressure from both margins and near 0 interest rates, and this challenge may continue.

In Asset & Wealth Management, building an integrated platform is a long-term effort, but we're on track and producing results. Underlying revenues are up year-on-year, with a shift towards active assets. Underlying costs are benefiting from last year's restructuring. Very importantly, net money flows have turned positive for the first time in 5 quarters, although we expect this to remain volatile.

Turning to costs. We're aware that historically, cost control has been a challenge for Deutsche Bank, which is why we're very pleased with the Operational Excellence Program, which is on track. In the first quarter, in line with plan, we made savings of around EUR 200 million and booked cost-to-achieve of around the same amount. We remain committed to delivering our targets.

We made further progress on cultural change in the quarter. GEC is leading the process of operationalizing cultural change and cascading it through the organization. We implemented recommendations of our independent compensation review panel, and these are influencing compensation policy and practice.

So looking forward, litigation expenses are hard to predict as they depend on the outcome of legal processes. Despite the relatively benign outcome in the first quarter, litigation expenses are likely to be a higher burden in future quarters. Furthermore, regulatory uncertainties exist. We talked about competing in the U.S. So let's also openly concede that the regulatory challenge in Europe is fiercer and broader-based. European universal banks are uniquely faced with additional measures, which are either implemented or under discussion. The financial transactions tax, compensation reform under CRD IV, bank levies and new proposed capital requirements for foreign banks operating in the U.S. We're hard at work on mitigation plans, which will allow us to adapt our model to a changing environment, as we have successfully in the face of other challenges in recent years. It's been noted not just by us, but by senior regulators and central bankers, that the Balkanization of regulation will create unintended consequences not just for us but for the wider economy.

So summing up. When we launched Strategy 2015, we identified 5 key levers: capital, costs, competencies in our core businesses, clients and culture. We are delivering on all of those, in particular on capital, where we are now among the best-capitalized banks in our global peer group, thanks to the measures I've just discussed. Of course, the operating environment will remain volatile. And hence, we remain vigilant in the face of uncertainty.

Now let me hand over to Stefan, who will go through the presentation. And after that, we both look forward to taking your questions. Thank you very much.

Stefan Krause

Yes, thank you, Anshu, and good morning to everybody.

I would suggest that we turn to Page 2 of the presentation, which starts and gives you an illustration of our capital position. Anshu already talked you through the background of our equity raise, but let me provide some further color. The equity raise announced yesterday is embedded into -- like Anshu said already, into a comprehensive capital plan. But the view to CRD IV is important to optimize our entire capital structure until 2019 to reflect regulatory requirements. First, we have seen a period of very strong organic capital build from a Basel III common equity Tier 1 ratio of below 6% at the beginning of 2012 to a ratio now of 8.8% by the end of the first quarter of 2013. Second, after adding more than 280 basis points organically, we now add approximately 70 basis points to our ex-rights issue, which takes our pro forma fully loaded Basel III ratio from 8.8% to approximately 9.5%. With 9.5%, we are already now covering the Core Tier 1 minimum capital requirement, as well as the capital conservation buffer and the G-SIB requirement, which only becomes effective in 2019, which means that we meet this requirement already 6 years ahead of time. With our announced third measure of the package, we will also strengthen other elements of the capital structure. Our current capital structure, as per the first quarter, encompasses 3.9% hybrid Tier 1 and 1.7% Tier 2, aggregately in excess of future CRD IV requirements. To manage the transition, however, we anticipate issuing EUR 2 billion in the form of additional Tier 1 and Tier 2 capital instruments over the next 12 months, equating to an increase of our current total capital ratio of more than 50 basis points. Such issuing will not only allow us to transition to a CRD IV capital structure but will -- also will help manage our leverage ratio and, as Anshu said, improve our resolution planning.

If we go to Page 3, Page 3 shows you the development of our pro forma Basel III common equity Tier 1 ratio since December 2012, again, illustrating our strong improvement of more than 280 basis points, which we achieved organically, and then the extra uptick of targets through our ex-rights issue, leading to a pro forma Core Tier 1 ratio of approximately 9.5%. Our strong momentum to date, including the further capital supply measures announced, put us in a position of strength vis-à-vis regulatory requirements and also position us very well in our peer group. With 9.5% already now, we have a very clear and visible path to our long-term target of 10%. In fact, with only 50 basis points to go, we have gained further flexibility to take market opportunities as we keep unlocking capital from our non-core unit and building capital through earnings.

So let me move to the quarterly results. And I will start to say, within my time at Deutsche Bank, this has been now the most straightforward quarter I've had. For the first time in many quarters, there are no current issues that require special attention. So I will focus barely on the presentation of the group and the segment results. And for that, let's go to Slide 5. So on Slide 5, I just would like to highlight now that we've introduced a post-tax return on average active equity metric. And the reason we provided this number to you is to give you the ability to track our performance against our target of greater than 12% for the group. This quarter, it actually stands at 12.3% annualized. The leverage ratio is currently 21x. It is our ambition to further improve this ratio. After taking the capital issue off the table, we will now focus on balance sheet optimization and balance sheet efficiency going forward.

On Slide 6 now. For the group, you can see that we reported a pretax profit of EUR 2.4 billion then net income of EUR 1.7 billion. The pretax profitability in the Core Bank was EUR 2.6 billion. The Core Bank's post-tax return on today's average equity is 16.5% annualized, so as you can see, very well ahead of what we anticipate in the future it to be. Our full year target is greater than 15% for the Core Bank. I'll talk more about this later in the presentation.

And let's turn to Page 7. And we can see the revenues were broadly stable year-over-year. The revenue environment for each of our business continues to be challenging. I think Anshu referred to this. We continue to face, obviously, the distortions caused the extraordinary monetary policy needed to support global growth, the impact of fiscal consolidation both here in Europe and the U.S., and the effects of a very low yield environment depressing our activities, which obviously are more dependent on interest income level. Despite this challenging environment, if we adjust the first quarter 2012 for the impairment of our now disposed Actavis holding and the impact on both periods of the Abbey Life gross up and CVA/DVA effect, revenues would have been only slightly down year-over-year.

On Page 8, you see our provision for credit losses that for the first quarter was EUR 354 million, an increase of EUR 40 million from the prior year's quarter, with lower provisioning levels in PBC being partially offset by a single one-off event in GTB. Our solid provisions for credit losses in Q1, we see, are higher compared to last year third quarter. We do not see any trend deriving from this. Our Q1 provisioning levels are in line with our plan for the current year and, overall, remain very low.

So let's move on to the interesting topics on cost on Page 9. You see, on a reported basis, our costs are down EUR 370 million, or 5% year-on-year. On this slide, we also show you our adjusted cost base, which excludes the effect of cost-to-achieve, policyholder benefits and claims, litigation impairment of goodwill and other severances and other disclosed one-offs. And this field basically aligns our external disclosure with the way we manage our cost internally. On this basis, expenses are also down 5%. We are pleased to report this decline in noninterest expenses because it does reflect our renewed focus on cost management and cost discipline at the bank. However, we continue to focus our attention on investing in longer-term process and efficiency improvement as part of the Operational Excellence Program. Therefore, we expect that in the near future, due to the irregular CtA timing, movement in the recorded cost base don't give much often indication, just as a note of caution when you do your plan. General and administrative expenses declined by EUR 368 million or 12% year-over-year, reflecting the more disciplined cost management and lower litigation expense, which more than offset the increased cost-to-achieve. Compensation and benefits declined by 3% year-over-year. Within this, compensation, excluding variable compensation cost, is 4% lower, mainly as a result of the headcount reductions made in the second half of last year. Variable compensation costs have increased 3% as the impact of lower deferred award amortization in 2012 will only become pronounced in the last 3 quarters of this year. Please note litigation expense was only EUR 132 million in the quarter. This amount would have been substantially higher. But as a post balance sheet event, we recorded EUR 592 million as 2012 charges rather than as first quarter charges. We therefore should not assume Q1 litigation expense to be any indication for our run rate of 2013 -- I must say regretfully, yes. The timing and size of litigation expenses going forward is unpredictable. However, we have assumed continued headwind from litigation on our budgeting and capital planning for the next couple of years.

Let's move on now to Page 10. There, you can see how we're making progress on the Operational Excellence Program. This quarter, we only spent EUR 221 million on the Operational Excellence Program, by our full year plan is EUR 1.7 billion, as we had communicated previously. Our CtA is released, obviously, on an initiative-by-initiative basis. We have good visibility on the remaining EUR 1.5 billion planned for the last 9 months of this year, more than EUR 1 billion of this amount attributable to confirmed initiatives or initiatives in execution. The remaining amount has been detailed or validated already. So this year, it's expected to be the peak year of costs associated with the Operational Excellence Program. But in Q1, we saw low expenses that we expect to ramp up over the next quarter. And then also, the net savings will become more visible then in 2014 and 2015, as you can see from the chart, when the investment starts to taper off.

Let's turn to Page 11. You see the profitability here. We are on a faster start than last year. As you can see, pretax profit increased by 28% year-over-year, while net income increased just 18% due to the higher effective tax rate in the quarter. As I mentioned earlier, for the first time, we are showing a post-tax return on average equity of 12%, as you can see. Also started at this quarter, average equity is allocated to the business on a fully loaded Basel III basis. This means the allocation of capital is now consistent with the communicated capital and return on equity target we set in our Strategy 2015 plan. For the full year 2012, we have, therefore, allocated an additional EUR 5.9 billion out of Consolidation & Adjustments. As you might expect, the effects are most pronounced in CB&S, whose average equity increased by EUR 3.6 billion, and in the NCOU, which received EUR 1.8 billion of additional allocated equity. And there is, by the way, a slide in the appendix which details some of these charges, if you have further question about this reallocation.

On Page 12, the now very famous Page 12 that we have been tracking for many quarters, here you can see how well the capital ratios have improved. Obviously, this chart is still under Basel 2.5 before tracking to Basel III on, obviously, the subsequent pages. We finished the quarter with a Basel 2.5 Core Tier 1 ratio of 12.1%, 70 basis points higher than at the end of the fourth quarter 2012. The increase in our Core Tier 1 ratio is a result of our Q1 net income, as well as the continuation of our successful derisking program, which I will talk more about later on. With regard to our Tier 1 ratio, let me put 2 things into perspective. This ratio, which only a few years ago was managed to achieve a target of greater than 10% and to 8% to 9% before that, now stands at 16%. And this is under the more stringent rules of Basel 2.5. And actually, looking at our capital raised, it stands even at 16.7% and our common equity Tier 1 ratio at 12.8%. In other words, on a like-for-like basis, we more than doubled our capital ratio over the last 5 years, meaning since March of 2008.

So let's review the capital and risk-weighted asset development in the quarter a bit more in detail on the next slide, which is Page 13. Our regulatory capital increase is mainly driven by net income, which added EUR 1.7 billion to our Core Tier 1 capital by smaller movements through reductions in capital deduction items and FX effects offset by our dividend accrual and other smaller items, as you can see here on the chart. We achieved a reduction of approximately EUR 9 billion in Basel 2.5 risk-weighted assets in year end. This primarily reflects the Basel 2.5 effects of our derisking program on credit risk RWA, which is largely achieved by asset sales and hedging and, to a lesser extent, by parameter recalibration. These reductions are partly offset by moderate increases in market risk RWA.

Let me move on to Page 14, which we -- now I'll move to the Basel III framework. And as Anshu already said to you, our fully loaded Basel III pro forma Core Tier 1 ratio for March was 8.8%, comfortably above our set target of 8.5%. Starting from Basel 2.5, we first see a EUR 61 billion with further [ph] asset increase in relation to Basel III in the phase-in case, which is EUR 13 billion than what we recorded at year-end 2012, mainly attributable to increased clarity and more precise application of the proposed rules in Europe, as well as the further CVA hedging. Moving on to the fully loaded case, we then see a EUR 6 billion risk-weighted asset reduction as the 10%, 15% threshold comes down. And hence, more DTA are deducted and no longer risk-weighted. On the capital supply side, phase-in rules allow us to apply capital like [indiscernible] additional Tier 1 capital such as hybrid first so that our recorded Core Tier 1 capital will actually increase. Our pro forma Core Tier 1 ratio with phase-in will, hence, be 13.6%, far above all regulatory requirements. In the Basel III fully loaded scenario, all deductions would be against Core Tier 1 capital, and we would see a EUR 19 billion capital decrease compared to the phase-in scenario. These EUR 19 billion of deductions relate mainly to goodwill intangibles, as well as deferred tax assets, but also to items such as our net pension fund asset, CVA, minority interest and other. This gets us to a pro forma Basel III Core Tier 1 ratio on a fully loaded basis of 8.8% per month -- month end, and to approximately 9.5%, as our capital measure announced yesterday.

Let me now turn to Page 15. Let me give you an update on our capital demand, which we first spoke to you about in our Investor Day last September. At that time, we committed to a Basel III risk-weighted asset equivalent reduction of about EUR 90 billion, as you remember, and we've said that this will happen over the course of the second half 2012 and the first quarter of 2013. We subsequently increased our target to greater than EUR 100 billion. And now with EUR 103 billion risk-weighted asset savings since June 2012, we have fully delivered on our targets. And I would like to summarize our measures today as the accelerated derisking initiative is coming to an end this quarter. First, about 60% of our RWA savings have been achieved through asset sales and hedging, with outright sales contributing the clear majority. We then had a reduction in our VaR multiplier, which was approved by the BaFin from 5.5 to 4.0, driving another 11% of the reduction. Here, you should take note of the recent BCBS report on market risk, where you can see that our reduced multiplier is still conservative when compared to peer average and significantly above the minimum 3.0 required under the Basel rule. The rollout of BaFin-approved advanced model contributed a further 13%, and I can almost say only a further 13% as we increased our advanced model coverage in line with our German regulation to meet a minimum 92% coverage ratio by the end of 2012, notably one of the most stringent requirements of any regulator. Improved process and data disciplines, including the recognition of netting agreements on collateral received, as well as other improvements in our data infrastructure, contributed a further 17%. We understand that there are some of you who are concerned about risk-weighted asset reduction for model. So let's again assume that all modeling changes we implemented under close watch of our regulators, by the way, would be taking back. We would only lose EUR 13 billion of our EUR 103 billion risk-weighted asset reduction, which -- basically, would mean that we would be still needing our EUR 90 billion target we set ourselves and we would still exceed our 8.5% ratio target. So in the first quarter 2013, we saw all asset sale/hedging-related reduction now only coming from our non-core unit, which will remain a source for continuing reduction in capital demand going forward. For the core businesses, however, we did not see and do not plan any net risk-weighted asset reduction. Going forward, a good amount of the capital relief generated in the NCOU will be redeployed into the core businesses to support the 2015 strategic objective. So in the coming quarter, you should not expect the magnitude of risk-weighted asset savings in over the recent quarters to continue, but capital to be freed up on a much more moderate basis and, as I stated, redeployed for growth and opportunities in the market.

So let's turn now to the segmental results briefly on Slide 17. I'll start with CB&S. The first quarter 2013 saw a significant improvement in market sentiment and increased risk appetite compared to the second half of 2012. However, CB&S revenues were down 4% year-on-year due to the absence of LTRO-driven liquidity in the prior year quarter. After a strong January driven by sustained risk appetite, capital markets activity tailed off in February, reflecting concerns over the U.S. sequester and Italian election. Before picking up again in March, as fears of a global slowdown faded on strong economic data. With this environment, CB&S continues to operate at low-risk levels in the first quarter of 2013, maintaining VaR levels in line with year-end 2012 and with, by the way, no negative trading data in the quarter. Year-over-year, our Basel 2.5 risk-weighted assets are down 16%. Noninterest expenses were materially lower in the -- than the prior year quarter, which was really a significant achievement, with the reductions in both compensation and non-compensation costs reflecting solid progress on the Operational Excellence Program. On restructuring, we have now materially completed the 1,500 headcount reduction announced in CB&S and in the related infrastructure functions.

On Page 18, you can see that the first quarter 2013 debt sales and trading revenues compared well with the previous year despite less favorable market conditions due to the absence of LTRO-driven liquidity, as I said, and a slowdown in activity in this quarter. As a part of our 2015 strategy announced at the 2012 Investor Day, we've now integrated our GFFX and our rates and credit rating businesses into a single fixed income and currencies business in order to realize further efficiencies of scale. Global liquidity management saw revenues down significantly year-over-year primarily due to a very strong first quarter in 2012 when the businesses benefit from lower rates, resulting from the access market liquidity driven by the LTRO. Rates and flow credit revenues were lower as strong performance in credit, especially in U.S. and Europe, was offset by weaker revenues in rates driven by lower volumes in Europe. FX saw another quarter of record volume, but revenues were slightly down year-on-year due to the lower volatility and ongoing margin pressure. DB, by the way, was ranked #1 in the Greenwich FX 2012 ranking. Credit solution revenues were higher year-on-year driven by increased client demand, reflecting increased risk appetite and a general rally [ph] in Asian credit market.

On Page 19, you can see our equities revenues that increased year-on-year, driven by strong cash equities and derivatives. Revenue of cash equities are up year-on-year, supported by positive market sentiment and a solid performance in electronic trading, reflecting ongoing investment in this business. Cash equities also benefited from a strong performance in the EM business. Even with lower business of volatility, derivative revenues were also higher, driven by the better performance in Europe and especially in Asia. Prime Brokerage revenues were in line with the prior year quarter, with increased global balances and revenue growth in APAC, reflecting the ongoing strength of our franchise in that region.

On Page 20, I turn to Corporate Finance. Global Corporate Finance fee pools were in line with the prior year quarter, with strong capital markets in the U.S., offsetting declines in Europe and Asia. In the first quarter 2013, we maintained the record global market share that we achieved in 2012. In EMEA, we are ranked #1. Higher year-over-year revenues in equity and debt origination were offset by lower year-over-year revenues in the advisory business. First quarter 2013 was a challenging quarter for the advisory business as lower fee pools were exacerbated by a record low yield count. The fee pool was driven by a small number of large deals. However, our advisory pipeline looks very solid and is significantly up versus the same time last year. Deutsche Bank EMEA market share increased across all ECM and DCM products from full year 2012 except for investment grade loans.

On Page 21, we'll talk now about our Global Transaction Banking. As you can see, the income before income taxes in GTB was EUR 309 million in the first quarter 2013. Revenues remained stable compared to the prior year quarter, both from fee and interest income. On the one hand, we remain challenged by the progressive decline in interest rates and compressed margin. But on the other hand, we've been able to compensate returns through monetizing our deal pipeline. This quarter was adversely impacted by an increase in our loan loss provisions primarily attributable to a senior client credit event in Trade Finance. In general, though, we do not observe any broader deterioration of the credit counterparty risk across the portfolio. Compared to the first quarter 2012, Trade Finance continued to benefit from high demand for financing products. Trust & Securities Services came under pressure due to the aforementioned low-interest rate environment. Cash Management benefited from a strong deposit volumes.

So let's go to Page 22. Our AWM is off to a good start this year, I can really say, in both its operating performance and its continued execution in integrating our various Asset & Wealth Management businesses. Revenues, excluding the Abbey Life gross up, increased by 4% year-over-year. More favorable equity markets, improving fund flows and positive asset mix shift from defensive to more actively managed product drove the revenue increases across all of our products. The reported IBIT of EUR 221 million includes EUR 40 million of cost-to-achieve related to the Operational Excellence Program. The compensation and benefit savings from the first phase of our restructuring program executed in the second half of last year are largely overshadowed by the variable compensation effect I mentioned earlier in the presentation. Lastly on AWM, I'm happy to report positive net asset flows, with more than EUR 6 billion of inflows across wealth management and asset management -- Anshu already referred to this, which compares favorable to outflows of EUR 8 billion in the first quarter of 2012 and EUR 22 billion in the full year of 2012.

And last but not least, let's move on to Page 23, our Private & Business Clients business that achieved a very good result in the first quarter with a reported IBIT of EUR 482 million. Revenues continued to be challenged by the low-interest rate environment. And the ongoing integration of Postbank is also evident in the expense space. Adjusting the reported IBIT for cost-to-achieve, as well as for PPA effect, the IBIT would have been approximately EUR 650 million. The improvement year-over-year is primarily driven by a continued reduction of risk cost and increased credit product revenue. We have been successfully growing our loan businesses, especially in German mortgages, and have benefited from extended margins in other European countries. Lower deposit revenue due to the near 0 interest rate environment are somewhat offsetting the positive trend. Advisory Banking Germany achieved a rebound compared to the second half of 2012, benefiting from lower-risk provisions and higher revenues. Sales activity over the past 3 quarters has developed positively. New mortgage business volume have reached record levels, and investment revenues have picked up considerably. The year-over-year IBIT decrease was driven by several nonoperating effects, cost-to-achieve and an intangible impairment this quarter which masked the otherwise growing profitability. Advisory Banking International reported a very good result, increasing IBIT year-over-year. The business division continued its solid performance in Southern Europe despite the ongoing prices and benefited from a higher HuaXia contribution. Consumer Banking Germany posted a strong result, benefited by increased credit product revenues and strict cost and risk discipline. As already announced at the Investor Day last year, cost-to-achieve related to Postbank integration will now be reported as part of the Operational Excellence CtA from 2013 on. Overall, CtA spend has already increased year-over-year. And as already seen in previous year, CtA will most likely significantly increase in the second half of the year. And I can also report to you that the Postbank integration continues to be well now on track.

On Page 24, we have our Consolidation & Adjustments piece. As you can see, the pretax loss in C&A was EUR 255 million this quarter compared to a loss of EUR 432 million in the prior year quarter. The more favorable development was primarily attributable to lower negative revenue effect from valuation and timing differences. The variance in mid- to long-term U.S. dollars-euro spaces spread had significantly smaller impact on the mark-to-market valuation of our position. In the prior year quarter, these effects amounted to negative revenues of approximately EUR 320 million. By this quarter, they were negative EUR 160 million. Additionally, the widening of credit spreads on our own debt, produced a mark-to-market gain versus a loss in the prior year quarter. Noninterest expenses also include a lower bank levy accrual year-over-year.

Finally, let's turn to the development of our Non-Core Operations Unit. As I mentioned earlier the derisking in NCOU has been a key factor in the group's organic capital bid story. During the first quarter, we successfully reduced Basel III risk-weighted asset equivalent by EUR 50 million primarily through the sales of securitization assets and the final disposal of the Structured Credit Portfolio and other bond portfolios that were originated by Postbank. Together, these disposals resulted in a Core Tier 1 ratio improvement of approximately 30 basis points after taking into account the pretax operating results for the quarter. Favorable market condition allows us to sell these assets at or above carrying value, resulting in incremental mix gains from this derisking activity. And revenues improved quarter-on-quarter primarily due to the favorable market conditions, which had a positive impact on market and CVA, while underlying costs remain stable.

So finally, I come to my last page on Slide 26. We had laid out an ambitious plan to reduce Basel III risk-weighted assets from EUR 141 billion at June last year to approximately EUR 90 billion at the end of March 2013 in the NCOU. And I can really -- and I'm pleased here to announce that we have achieved this milestone. The 28% reduction of balance sheet asset requests a 35% reduction in Basel III equivalent risk-weighted assets of EUR 3.2 billion of capital accretion since June 2012, when these assets were assigned to the NCOU. This include the EUR 2.3 billion cumulative pretax operating loss, since the 30th of June 2012. Our EUR 15 billion Basel III risk-weighted equivalent savings was achieved primarily from derisking activity with the following notable transactions: approximately EUR 5 billion in relation to the commutation of specific CB&S positions held with the monoline insurer together with the disposal of the underlying bond portfolio. Further savings from derisking of other IAS 39 assets accounted for an additional EUR 2.7 billion reduction in Basel III risk-weighted assets. And by the way, you can see in the appendix the gap between our book and fair value on our IAS 39 portfolio was reduced to EUR 1 billion. Then we had approximately EUR 3 billion from sales of the structured credit and high-yield portfolios within our Postbank business. I can't confirm that we'll remain on track to achieve our target of EUR 80 billion of Basel III risk-weighted asset equivalent by year end, but we expect the pace of reduction in assets and associated capital demand to lessen over time. With capital accretion in the forefront of our decision-making process, we will continue to evaluate the rationale of exit versus fault to take advantage of market condition and to optimize and protect shareholder value. And we continue our progress on derisking during the second quarter as we have reached an agreement to sell our legacy U.S. commercial real estate portfolio that we inherited with our Postbank acquisition. We expect this transaction to close this quarter and to deliver a further Basel III risk-weighted equivalent reduction of approximately EUR 2 billion.

So thank you very much for your attention. And we're looking forward to your questions now.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Kian Abouhossein of JPMorgan Securities.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

The first question I have is regarding risk-weighted assets. You're now at EUR 380 billion Basel III. At the Investor Day, Stefan, you guided towards a number of EUR 434 billion due to some business growth. Should we dismiss this EUR 434 billion by 2015? Or is that still relevant going forward? Or should we think more the current level of risk-weighted assets at good level that we should assume as a run rate? And in connection to that, you have a Tier 1 Basel III target of 10%-plus by 2015. I'm wondering if -- is it not more realistic that we should really think about this more as of end of this year? And why don't you want to bring this 10%-plus target up, i.e. closer to the current time period? The last question I have is regarding FBO and if you could give us an update of, one, how you think about the debt-to-equity swap if you had a discussion with the Fed and with the BaFin about that, the amount that you think you would have to swap? And secondly, any discussion around funding, i.e. local versus still grouped or trapped funding, if you could give us an update where you stand in that respect, how you read the FBO proposals?

Stefan Krause

Thanks, Kian. I think a couple of good questions. From today's perspective, to answer your first question on the EUR 434 billion, I would say that we should think about a little bit lower now. Currently, if we look at the business opportunities, I think that we would see this a notch lower, certainly above the EUR 380 billion level but lower than the EUR 434 billion. That's our current thinking. And when we look at the appetite that the business has and what the business needs in order to fulfill their target, it's in between these numbers. Then you asked me on the 10%. Obviously, I don't think it takes a genius to calculate that we have really gotten very close to the 10%. Nevertheless, we want to preserve our optionality. And therefore, obviously, we have not give an update on this target. But you can assume that, obviously, we are inside of this 10%. It was important for us to be inside of this 10%. So we're fully taking the capital concern off the table. So for right now, let's stay with our guidance. But I would say we're pretty sure that we'll achieve this target by 2015 now. Then on FBO, I would say that, as described to you in previous calls, that we think that we can, even if the worst case scenario of these rules were to come in place that we had a plan put together to meet the requirements that especially, it's a leverage requirement and that's because for this leverage requirement, Tier 1, Tier 2 instrument can be used. We feel very comfortable that we would be able to -- doing the swap of debt-to-equity and especially then eventually debt-to-equity like instrument, achieve what we needed to do in the United States. The problem that remains those with be FBO rules are still unclear. We haven't learned any additional -- the proposal is out, and we have commented on the proposal. You've seen a lot of lobbying going around. And we are now awaiting until we can see the final rules. So therefore, I regretfully have no update for you. We haven't learned anything additional in the last couple of weeks about them. Let's wait until the final text is out.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Okay. If I can just -- one more very quick one, on Page 15, the asset sale and hedging numbers, the core and non-core. Can you just tell me how much of that EUR 43 billion plus EUR 18 billion is hedging versus asset sales?

Stefan Krause

Yes. Hold on, Kian. About 90% is asset sale. The majority by far is asset sales.

Operator

The next question is from Daniele Brupbacher of UBS.

Daniele Brupbacher - UBS Investment Bank, Research Division

Just a question on the OTC to CCP transition, and one of your U.S. competitors, JPMorgan, gave quite some specific guidance earlier this year. I think it was in February. Could you just share your thoughts with us regarding what the potential revenue impact could be for Deutsche just thoughts around repricing margins and capital consumption in that context? And a just second question on compensation in CB&S, I think the comp ratio was like in the first quarter last year at 38%. It then kind of approached a 40-ish level, which was kind of the level you had over the past few years. Is that how we should think about compensation ratios this year as well? Or is there any reason that it could be different, for example, the structure of compensation this day [ph], et cetera?

Stefan Krause

Okay. On -- in your question on OTC to CCP, it's difficult to predict at this stage. Now we're still awaiting the final set of regulations. And we expect the impact of each regulation will obviously be known once they're fully implemented. And revisions to meet it and particularly -- I think we are some years from implementation away. In terms of central clearing, we don't expect any meaningful impact. Introducing CCP clearing doesn't in itself change much products overall in the economics. And in any case, liquid IRS have been clear for many years. Moreover, there are also likely to be some incremental revenues which could accrue from demand of collateral management and clearing services. So as I said, we don't really expect any meaningful impact. On your compensation ratios, yes, we had a 38% in CB&S. We have told you that we intend to stay below 40%, yes. So in that sense, I think this is -- the first quarter is more in line. I told you that, obviously, some of it is a result of the headcount reductions we had, yes. And therefore, obviously, we'll see the impact in the first quarter of that. But we remain true in our guidance to stay around to below 40%.

Operator

The next question is from Mr. Jeremy Sigee of Barclays Capital.

Jeremy Sigee - Barclays Capital, Research Division

Can I ask -- I've got a micro question and then a more big picture question, please. So the micro question is just very specifically, of the EUR 221 million group CtA and the EUR 132 million group litigation that you identified, how much of that is in non-core and how much in core? I just wondered if you could give us the split. That's the micro question? The big picture question and it's linking back to the earlier question, if you're likely to get to your 10% targets actually this year, is the implication that your capital ratios drift higher than that sort of, say, towards maybe something like 12% perhaps in view of the [indiscernible] or in view of your still above average, nominal average?

Stefan Krause

Okay, I can start with the first question. Obviously, our CtA is fully in core.

Jeremy Sigee - Barclays Capital, Research Division

So all the EUR 221 million is in core?

Stefan Krause

Yes, core.

Jeremy Sigee - Barclays Capital, Research Division

Okay. And the litigation, the EUR 132 million?

Stefan Krause

The litigation, about half-half.

Jeremy Sigee - Barclays Capital, Research Division

Half and half, okay.

Anshuman Jain

The second part of the question. And Jeremy, our answer to the second part of the question is quite clear. As we said earlier, we are targeting 10%. Don't forget we are issuing this Tier 1, Tier 2 debt in the amount of about EUR 2 billion. Based on all the simulations being done, that is more than adequate to take care of all the regulatory uncertainty even resolving towards more pessimistic scenarios. And hence, we've made it very clear. I'd said that in my opening comments, we would be committed to returning capital back to shareholders as we meet and exceed our deregulatory minimums that we've been set.

Operator

The next question is from Kinner Lakhani of Citi Investment Research.

Kinner R. Lakhani - Citigroup Inc, Research Division

So a few questions. Firstly, on the non-core, where you have EUR 91 billion RWAs, I just wanted to get a sense of how much decline you would expect on a 3-year view on a purely kind of passive basis by maturity and/or repayment? Secondly, just coming back to your point on capital above and beyond this 10%. What could we consider in the medium term as a normalized payout ratio -- normalized dividend payout ratio? And thirdly, just on the deferred comp charge, could you remind us what kind of deferred comp charge you would expect in 2013 and 2014 versus what was charged off in 2012? And also looking at Slide 9, if I annualize Q1 to adjust that your cost savings or your cost base, your run rate is about EUR 1 billion lower than the first half of last year. Is that how you're thinking about it?

Stefan Krause

Kinner, let me start on your question on the EUR 90 billion risk-weighted assets like the roll off in the normal course of business in the next 3 years. It's about EUR 30 billion to EUR 40 billion risk-weighted assets. So that would be my guess on our -- looking at the asset composition on a do-nothing scenario in terms of accelerating that. Then your next question was related to the capital above 10% and the payout ratio. We have not given out the payout ratio at this point in time. At the -- in our world, it's the Supervisory Board that makes the proposal to the AGM, obviously, supported by a proposal that the Management Board make. We have always said that once we're above -- on or above the 10% that our ability to return capital to shareholders, to increase dividends is given. And a very strong part of our move in our decision to move quicker on capital this time was, obviously, the fact that we saw how our competitors in the market have moved on and is returning capital to shareholders is increasing dividends. And we had the feeling that we had to put and give the optionality to Deutsche Bank as well. And that's why we accelerated our effort to get close to this 10% threshold. So it just gives us optionality and enables us to do it. But again, we have not disclosed the payout ratio. But I can, I think, speak for the Management Board. We remain very committed to increasing dividend in the near future as well. On your question on the deferred comp, it's -- I don't remember what the question was. The charge -- whether a charge is expected in 2013, 2014 versus 2012. Well, I believe that it's going to be, obviously, lower because we have started to reduce the deferral amount if you remember from our year-end account. So we are in -- we were in 2012 and in 2013, we still have a large chunk of the old, which is the higher deferred piece to deal with. And therefore, deferral pieces are coming down. Now the next question was on the run rate. We disclosed that we would save an additional EUR 1.2 billion, which, however, can be offset by further growth. And that's why I also -- I have always cautioned you, the analysts, to say, "Let's not forget what we have in the program." It's a program that will really lower run rate cost. But as we position the bank to maybe take opportunities of growth and we see growth, obviously, then please consider that there will be some offset. And that's why we continue to track more to -- in 2015 to the 65 basis cost-to-income ratio. That's the bigger driver for us to achieve as we don't know how revenues are going to continue. But if you asked me this question to give you a guess, I think the number is likely to be around EUR 1 billion if you take it that way. And I think that's all your questions.

Operator

The next question is from Huw Van Steenis of Morgan Stanley.

Huw Van Steenis - Morgan Stanley, Research Division

Two quick questions. You have to adapt your business structure in Germany for high-frequency trading guards and hedge funds. Could you give us any update on how far advanced you're on that? And any particular impact on capital or funding? And number two, as you look to the U.S. rules, do you -- just in the way you've anticipated some of the rules by the capital increase, do -- should we expect that you will issue more of your debt in dollars? Or do you think you will just wait until the rules are actually printed?

Stefan Krause

I can take the second one, yes. Well, then let me take -- quickly, Anshu is going to take the second one.

Anshuman Jain

So on issuance in the U.S., we've done everything which we needed to do. We now intend to wait and see what finally comes up. At this point, we would have no further plans for any issuance beyond what's been announced already.

Stefan Krause

And to your first question, obviously, there is no real clarity yet on the German structure proposals. They are out and -- the proposals. We have to wait final resolutions. Our current view is that the impacts are very manageable.

Operator

The next question is from Mr. Christopher Wheeler of Mediobanca.

Christopher Wheeler - Mediobanca Securities, Research Division

Just a couple of quickies. First of all, on the cost-to-achieve, Stefan. Obviously, you were telling us to look for that EUR 1.7 billion this year, I think EUR 1.5 billion next year and EUR 200 million the year after. And obviously, you've only pushed through EUR 221 million. Can you give us some kind of clues to whether your estimates for the year, the restructuring charges will change? That's the first question. The second one, I'm going to go into the virtual key area once again of the FBO. I'm just trying to get my head around the fact that when you sort of put the story -- or the information into the market about what's going on, allowing both capital and funding, you were obviously being very conservative particularly around funding. And that was really on the back of concerns about losing the large exposure. The fact that the large exposure, that issue on your intercompany debt would fall away and you might have an issue there, and that the actual cost of local funding would go up. I'm getting the impression that this concern about losing the cancellation of the large exposure will -- has sort of gone away a little bit and also that I'm hearing that your view is that if you do have to raise more funding locally, it could be down pretty close to where the group rate is. Are these sort of fair comments? Or are you still, as you said earlier, going through the fine print?

Stefan Krause

Okay. First of all, on the way to think about the CtA, I had referred to it in my presentation. And we planned CtA based on specific measure, yes, so data, IT projects or efficiency project, where the investment money is spent. Obviously, a large part of these projects are in -- definitely in the planning phase, yes. So they're not really -- they need to get support. They need to get IT. They are obviously ordering all this now, yes. That's how you should think about it. And obviously, with the way we will receive the deal, it's obviously in a tendency later. That's why you always have to think about a ramp-up of the CtA throughout the year. Any of the severance costs would be the same. We obviously have to first implement the efficiency measures and then if redundancies -- we are able to realize redundancies, then I would see severance payments will come at a later stage. So that's how you have to think about the core program. It's a ramp up. We will stay at the EUR 1.7 billion. Current plan shows that the full year number that we plan is still EUR 1.7 billion. And of course, by the end of the year, give or take, on timing of project, we still believe we will be very close to that. The EUR 221 million was now the beginning. And therefore, just think about the second quarter some more and then ramping up through the third and fourth quarter. At the same time, of course, then our achieved synergies are also ramping up. That's, as we also have a lower level of synergy realization in the first quarter. And that's how it, more or less, stays in line. Don't forget we have a net 100 negative plans between the EUR 1.6 billion in savings and the EUR 1.7 billion in expenditure for this year. On FBO, again, I think that the final framework is not available yet. So I like that you've perceived that we are a little bit more relaxed about it. And certainly, we have learned a little bit more about how to be able to deal with it internally. And when you read our confidence, it's more with the fact that we have a plan in place that gives us confidence that we can deal with a direct impact of the FBO. And that we also have, by now, developed some confidence on how we can deal with the large intercompany exposure. By the way, we do not believe, at this point in time, that we could fund more inexpensively or equally inexpensively in the United States directly. It's just on how we perceive that we could manage the business. Some parts, obviously, of our plan is also some balance sheet reductions that we would do on the group as well. That gives us further confidence that the exposure in the United States will be manageable without P&L impact and without damaging our franchise in the United States. But again, final rules, we have to wait for final rules, yes. And final rules are unresolved at this time. And let's see until we get the final framework, okay.

Operator

The next question is from Ms. Fiona Swaffield of RBC.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

I have questions in a couple of areas. The first was on your fixed income result. Would you consider that you're losing market share? And do you think that maybe the derisking has impacted this business? Or is there -- is it something to do with the base effect in your view? The second area is on the cost savings. I just wanted to understand the moving parts to the final end game because you did give, in Q3, quite a useful kind of bar chart. So I mean, on the organic growth, I mean, could that be quite significant as an offset because there's a small work -- it says reinvestment at the bottom. But I'm trying to understand how significant could that be as an offset to the EUR 4.5 billion when we're looking at the end absolute cost base. And just the last question is on the leverage ratio but using Basel III exposure. Are we anywhere nearer being able to have a number on what that could do to your U.S. GAAP assets if you -- once you move to Basel III? I don't know if you'd look to that because you, obviously, had numbers from some others.

Anshuman Jain

Fiona, let me take the first question. As we said already, there's now a considerable amount of discussions over the last few months about our Sales & Trading business and investing banking platform. And as we said very clearly to you this morning, we're very gratified with where we stand. So both in terms of outright performance of that Sales & Trading in the first quarter, Deutsche Bank had a Top 3 position, which is where we've been on average for the last many quarters. And also on a year-over-year basis, our percentage decline in revenues is very much in line with the Top 5. So both from that measure but more importantly from what we hear from clients and what we see in league tables and so on and so forth, fixed income currencies and commodities have always been and continue to be an area where Deutsche Bank has a strong and dominant franchise.

Stefan Krause

Okay, let me start with your organic growth and planned cost reduction, good questions always. And what we're struggling with, to be honest and I think you're struggling too is, yes, we have set out a EUR 4.5 billion cost target. And now everybody is asking us on which base it is. And it's kind of, therefore, projecting a fixed cost target for 2015. And to be honest, this is a little bit unrealistic because I would say that at the end of the day, if there is growth opportunities, of course, we are not going to constrain on cost -- yes, our abilities to grow. And that's why we clearly state that the more important ratio to keep in mind that we're really clearly committing it and that at the end is a core ratio to 65% cost-to-income ratio. And now depending on where revenues turn out to be in 2015, this may either yield higher savings or requirement on the EUR 4.5 billion or lower net impact because we might have some additional growth opportunities that, of course, we, at that point in time, will then use. Nevertheless, the way the program itself is set up is really to achieve EUR 4.5 billion run rate. So we are going to plan to take out EUR 4.5 billion cost. And it's that, obviously, are really efficiency gains. This means really lowering the base run rate. And then from that point of view, at the efficiency level that we achieved with the EUR 4.5 billion, continue to run the bank. But of course, if there is -- and that's what the reinvestment means. If there is growth opportunity, we will not -- we will allow, obviously, a large portion of our run cost especially on the operational side, it's volume-dependent cost, obviously. If we get more transactions, if we're going to have more, build business, then obviously, we'll have respective cost increases. So that's the way to think it. I understand that sometimes, it's a little bit confusing. We will therefore separate. And that's already committed to you. We'll separate the program achievement and show how well we track against the EUR 4.5 billion. So you have transparency on that. But in terms of the reported cost line, if we have significantly higher revenues, there might be obviously a net expense. And we don't know at this point how much it is. As you know, we were a little bit cautious on our revenue projection in 2015 because we didn't know exactly how the environment is going to change. And therefore, we did not want to have a plan that was driven in achievement of the 65% cost-to-income ratio mainly based on an achievement of very high revenue target. So that was on that. I think that was the last. And then on leverage -- Basel III deleverage and our U.S. balance sheet, et cetera, et cetera, of course, as I said my presentation, we had a really successful program on focusing our Core Tier 1 or our Basel III Core Tier 1 ratio now. And I think we have been very, very successful with that. We will move the same level of attention now to address our leverage issue on a group basis. And then we have a top set data that is based on the fact that the current rule or proposal might end up being -- which we don't know yet, but might end up being also a leverage constraint in the United States. We, obviously, will go on and go ahead and reduce whatever is not required to the U.S. balance sheet, obviously, to change that. To give you only a simple example that I've shown, for example, our Mexican subsidiary assets are recorded within the U.S. group. That's not, at the end of the day, really a U.S. asset. And that's something we could, obviously, move to another subsidiary, only to give you an example that this is not -- what we're not. What we are talking about are not measures that are necessarily or that will not cut into our P&L or are hampering our business. If you'll think about the great level of liquidity, the bank has, obviously, some of that liquidity we have in the United States as well. And obviously, as we capitalize stronger, there might be some opportunities there as well, to give you an overview.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

But just to follow-up, what I was trying also to get at was we know the U.S. GAAP balance sheet of just over EUR 1.2 trillion. But would it be -- is there any indication of how much higher it would be under the new Basel III total exposure?

Stefan Krause

Yes, about -- I think our own calculation is about half higher, in between the -- that's the best estimate I can give you, in between IFRS and the U.S. GAAP, yes. So it is significantly higher calculated on net basis. But we're not concerned about it because don't forget, everybody -- if we finally get to harmonized view on leverage, that would be a good thing to have across the industry because then, at least the base on which we calculate and the definition on which we calculate, this leverage will be the same.

Operator

The next question is from Mr. Stuart Graham of Autonomous.

Stuart Graham - Autonomous Research LLP

I have a couple of detailed questions and a bigger question. The detailed questions, Page 87 of the interim report, your Basel III calculation, the other negative has gone from EUR 3.9 billion to EUR 3.2 billion. I wonder what drove that in the first quarter. And then the second detailed question is you've reboarded EUR 10 billion of trading assets. You restated your assets up by EUR 10 billion. I wonder if you could explain what that is, please. Then the bigger question is, on the rationale for the capital raise, I mean, I hear you that essentially, it's listening to shareholders, because, I guess, some people would say it's a bit illogical raising capital at this GAAP tangible book and then holding up the prospects of quicker dividends. But if I understand it correctly, you're saying that's what shareholders want and you've responded to that. Could you also just comment on the attitude of regulators? I mean, were they kind of passive in this process? Or was there encouragement from your -- these regulators to raise equity as well?

Anshuman Jain

Stuart, we'll answer your questions in reverse order. Let me take your big picture question first, and we'll give Stefan time to prepare his answers to your important detailed questions. Let me begin by reminding you that this management team started with a Core Tier 1 ratio of 5.9%, made you a promise that we would have very ambitious goals by the end of 2012, met and exceeded that. We then restated those goals up to 8.5% in the first quarter of this year and met and exceeded that. So we countered this capital raise from a position of great strength. There should be no doubt in any one's mind that we could have reached there organically. So why then the shift, why then this capital raise at a discount, as you've said, to tangible book? There's a number of factors that have played a role in our thinking. Let's start with basic math. We were asked to raise capital by virtually a unanimous opinion across investors and analysts in June, again September, again December. So the reality is that, that feedback isn't brand new. The difference, of course, is that if you begin with a starting point of sub-6% or even sub-8%, which is where we were at the end of last year, we didn't see how a meaningful capital raise even could get us to the point where the capital issue would simply be taken off the table. This is the first time that we can actually do that. Now you're right in saying there's a premium to doing it. There's a cost to doing it. The cost is the 10% dilution. The premium is to tell our 100,000-person organization that we're back to being focused, to getting on the front, focusing on our clients to focus on growth. And clearly, our own appreciation of market circumstances is more positive than it was in September. Equally crucially, we felt that gaining that period of time without being specific as to what is, but several quarters where we could be operating with optionality, are -- is worked a lot. Some of you have been wondering if we have visibility on new unknowns. And maybe that's a very polite way for you to have asked me that question about the regulatory view. The regulatory view has been the same all the way through. There is no doubt we enjoyed greater confidence with regulators at 8.8% than we did at 5.9%. So certainly, we have turned to them and asked for more time. We had that time. So clearly, there are tail risks with all banks. We have our tail risks as well. They're no different from what we thought they were back in February or March when we last communicated with you. But what has changed is the very rapid progress we made on organic capital formation, gave us a launch pad where in one fell swoop, we could hit all of the targets when no matter which way you look at it, there is no getting [ph] the fact that when Deutsche looks at its key tail groups at, we now have higher Core Tier 1 ratios than all of them. That was a tremendous opportunity and one we felt we should take.

Stuart Graham - Autonomous Research LLP

Just to be clear, I mean, this was your decision. There was no gun to the head from a regulator. This was management's decision.

Anshuman Jain

Our decision, no gun to our head, no visibility on any new unknown that we didn't know over the last multiple months.

Stefan Krause

And Stuart, I sit right next to Anshu. I know there is no guns anywhere. If anything, it was really a discussion we had in the Management Board, yes, after this great results we had and after the great result on capital. And honestly, if we would have just presented to you the good results, everybody would have asked, "So what's next?" And we just anticipate the, what's next, yes. Just take off the capital topic off the table. You guys have always requested it. We always said priority is organic first. And that's, at the end, what we did. And now I want some time to get you your detailed answers. Thank you, Anshu. And so the first one is, obviously, on the reduction that was on the negative from EUR 3.9 billion to EUR 3.2 billion, well, what's the driver. As you know that, it's lower DTA and also lower deduction given this higher capital. There is this 10 to 15 rule in place, yes, that these are maximum allowable limits. And then obviously, because of the higher capital, obviously, the deduction went down, yes. And this is what this number reflects. So it's this 10-15 rule on DTAs mainly. And then the second thing on the balance sheet is we have an adoption of IFRS 10 that changes the scope of consolidation, yes. And therefore, we had increased -- we had to include some nonmaterial entities that previously were not part of our consolidation group, yes, and rules. And that increased the trading assets by EUR 10 billion mainly. There was an impact.

Stuart Graham - Autonomous Research LLP

I guess my question are these are not kind of JVs where you sold assets, the hedge funds, provided in the financing and then...

Stefan Krause

No. Now the scope of the consolidation has been increased, yes. So it's just immaterial -- formally immaterial entities that -- Deutsche Bank has 8,400 legal entities, yes. And obviously, in a large consolidation, you always have entities that are immaterial and you don't therefore consolidate. And now according -- there is no -- and rule is out with IFRS 10 and we consolidate with entities. It's as simple as that.

Operator

Let me now hand back to Mr. Joachim Müller for his closing remarks.

Joachim Müller

Yes, thank you. So this concludes our first quarter analyst call. Thanks for your interest and, more importantly, for your support. Any questions that you have, please come directly to IR, happy to answer them. And otherwise, we'll see you on the road. Have a good day.

Operator

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day.

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